JOURNAL ARTICLE

Good faith as a ‘general organising principle’ of the common law

Klaus Peter Berger, Thomas Arntz

Arbitration International, Volume 32, Issue 1, March 2016, Pages 167–

178, https://doi.org/10.1093/arbint/aiw001

Published:

11 March 2016

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Abstract

This Note examines two recent landmark decisions of common law courts which qualify good faith as a
‘general organising principle’ of common law. In a judgment of 2015, MSC Mediterranean Shipping Co v
Cottonex Anstalt , the English High Court took the age-old discussion as to whether good faith is a
general principle of common law to a new level and acknowledged, for the very first time, the existence
of an organizing principle of good faith. In that judgment, the High Court referred to a 2014 decision of
the Canadian Supreme Court, Bhasin v Hrynew , in which the Court held that good faith contractual
performance is a general organizing principle of the common law of contract which underpins and
informs more specific rules and doctrines of common law contract law. Both decisions are highly
relevant for arbitrators and counsel in international arbitration, given that the general principle of good
faith is not only a rule of substantive law, but is also regarded today as a standard for the time- and cost-
efficient conduct of the arbitration.

Issue Section:

Case Notes

1. INTRODUCTION

Most civil law jurisdictions recognize and enforce a general duty of good faith. Often codified in statutory
‘catch all’ provisions, such as the well-known section 242 German Civil Code (BGB) 1 , it is regarded as
one of the basic principles governing the whole life of a contract. 2 The same is true for many
international instruments, such as the Convention on Contracts for the International Sale of Goods
(CISG) 3 or the UNIDROIT Principles of International Commercial Contracts 2010 (UPICC) 4 . In public
international law, the principle of good faith has always belonged to the ‘general principles of law
recognized by civilized nations’ on which the International Court of Justice shall base its decisions
pursuant to Article 38(1)c) of its Statute. 5 Because of its widespread acceptance in domestic laws,
international business as well as public international law, good faith is considered as part of transnational
commercial law, the New Lex Mercatoria . 6
The principle of good faith has also gained increasing significance and attention in recent years in the
field of procedure 7 . Article 11.1 of the ALI/UNIDROIT Principles of Transnational Civil Procedure of
April/May 2004 provides that ‘[t]he parties and their lawyers must conduct themselves in good faith in
dealing with the court and other parties’. 8 Paragraph 3 of the Preamble of the IBA Rules on the Taking of
Evidence in International Arbitration 9 provides that the taking of evidence before international arbitral
tribunals shall be conducted on the principle that ‘each Party shall act in good faith’. Pursuant to Article
9(7) of those Rules, the arbitral tribunal may take into account a party’s failure to conduct itself in good
faith, eg by adopting what are commonly called ‘guerrilla tactics’ intended to disrupt the process, 10 in
the taking of evidence in its decision on costs. 11 Pursuant to Article 27(d) of the IBA Guidelines on Party
Representation in International Arbitration, the arbitral tribunal may, in addressing issues of misconduct,
take into account ‘the good faith of the Party Representative’. 12 Good faith thus becomes one element in
what the drafters of the IBA Guidelines have qualified as an ‘overarching balancing exercise to be
conducted [by the arbitral tribunal] in addressing matters of misconduct by a party representative in
order to ensure that the arbitration proceed in a fair and appropriate manner’. 13

In spite of this far reaching acceptance of good faith, both in the area of substantive law and in the field
of arbitral procedure, the question whether a general principle of good faith really exists is far from
settled. This is mainly due to the fact that in common law, a general overarching principle of good faith
has always met with great scepticism or even outright hostility. The concept of a general duty of good
faith has been regarded as inherently unclear and vague 14 and against a party’s genuine right to pursue
its own interests as an integral element of the principle of freedom of contract. 15 In spite of these
fundamental differences, the traditional civil law / common law divide in this area of contract law is
gradually disappearing and the concept of a general duty of good faith in contractual performance has
gradually gained support in many common law countries. In the USA, the Uniform Commercial Code
(UCC) provides that ‘[e]very contract or duty within the Uniform Commercial Code imposes an obligation
of good faith in its performance and enforcement’. 16 So does the Restatement (2nd) of the Law of
Contracts. 17 In Australia, although the law is not settled, 18 courts acknowledge that broad duties of good
faith can be implied in commercial contracts. 19 Canadian courts have hitherto been divided over the
question whether there is a general duty of good faith. In 2014, however, the Canadian Supreme Court
held that there exists an organizing principle of good faith in common law that underlies and manifests
itself in more specific doctrines governing contractual performance. 20

English courts, however, have traditionally been adamant in their rejection of a general legal principle of
good faith. In 2013, the Court of Appeal reiterated its position that ‘there is no general doctrine of “good
faith” in English contract law’. 21 Instead, English courts have relied on ‘piecemeal solutions in response
to demonstrated problems of unfairness’. 22 It is mainly due to this restrictive approach of the English
courts that Article 14.5 of the London Court of International Arbitration (LCIA) Arbitration Rules, which
became effective on1 October 2014, provides that the parties to the arbitration shall, at all times, ‘do
everything necessary in good faith for the fair, efficient and expeditious conduct of the arbitration’.
Pursuant to Article 32.2 of the LCIA Rules, that duty applies not only to the parties of the arbitration, but
also to ‘the LCIA Court, the LCIA, the Registrar, [and] the Arbitral Tribunal’. 23 The decision of the drafters
to include such a specific reference to good faith into the new version of the LCIA Rules has been praised
as a ‘remarkable effort to align the LCIA Rules with the ancestral continental legal tradition of civil law
jurisdictions’. 24

However, it seems that the English judiciary itself is now beginning to move towards the recognition of
good faith as a general principle of law. That development began in 2013 with Yam Seng PTE Ltd v
International Trade Corporation Ltd.25 In that judgment, Leggatt J noted that in refusing to recognize a
general obligation of good faith the jurisdiction would ‘be swimming against the tide’ and that ‘the
traditional English hostility towards a doctrine of good faith in the performance of contracts, to the
extent that it still persists, is misplaced.’ 26 In a landmark decision of 2015, MSC Mediterranean Shipping
Co v Cottonex Anstalt , the English High Court took that development to a new level and acknowledged,
for the very first time, the existence of an organizing principle of good faith. 27

This Note examines the current role of good faith in English commercial law and discusses the possible
practical implications of the acceptance of a general organizing principle of good faith in recent English
court judgments. These implications are relevant for both the conduct of parties and party
representatives in arbitration seated in England, and for international arbitral tribunals that have to
decide a dispute that involves issues of good faith and loyalty 28 if the relevant contract is governed by
English law, irrespective of where the arbitration has its seat.

2. RECENT DEVELOPMENTS REGARDING GOOD FAITH IN ENGLISH CONTRACT LAW

While traditionally denying the existence of a general principle of good faith, English courts have not
been blind to problems of unfairness and dishonesty in the law of contracts. It has long been accepted
that some types of contracts, such as employment, insurance, and consumer contracts, oblige the
parties to act in good faith. In addition, various rules and doctrines such as (promissory) estoppel,
misrepresentation, undue influence, and implied terms reflect to a certain extent ideas of honesty,
fairness, and reasonableness commonly associated with good faith. 29

2.1 Increasing acceptance of good faith in case law

In recent years, English courts have been more ready to find that parties to commercial contracts are
subject to good faith obligations. In the area of commercial law, courts mostly rely on the implication of
good faith terms in fact, ie based on the implied intentions of the parties.

In Yam Seng PTE Ltd v International Trade Corporation Ltd30 the parties entered into a contract which
granted Yam Seng the exclusive right to distribute ‘Manchester United’ branded merchandize in a
number of duty free outlets. After some months Yam Seng terminated the contract relying on several
alleged breaches by ITC , inter alia undercutting agreed prices and providing false information. The High
Court found that the distribution agreement contained two implied terms. The first one obliged the
parties to act honestly in the performance of the contract, meaning they must not knowingly provide
false information on which the other side was likely to rely. Pursuant to the other implied term ITC must
not authorize the sale of any product in the domestic market at a lower retail price than the duty free
retail price agreed on with Yam Seng . The High Court held that ITC breached the implied term of
honesty by leading Yam Seng to believe that the domestic retail price was being increased although it
was not. 31

In this decision, Leggatt J also made some general comments regarding good faith. In his view, practically
every contract obliges the parties to act honestly. In addition to honesty, parties to a commercial
contract also have to respect ‘other standards of commercial dealing which are so generally accepted
that the contracting parties would reasonably be understood to take them as read without explicitly
stating them in their contractual document.’ 32 Depending on the context and the type of contract, the
parties may be subject to additional good faith obligations. According to Leggatt J, ‘relational’ contracts
such as long-term distributorship or joint venture agreements which require a high degree of
communication and cooperation during the life of the contract as well as predictable performance by
either side may require the parties to ‘share information relevant to the performance of the contract
such that a deliberate omission to disclose such information may amount to bad faith’. 33

This approach of Leggatt J was endorsed by the High Court in Bristol Groundschool Ltd v Intelligent Data
Capture Ltd.34 The case concerned the question whether Bristol was in repudiatory breach of the
contract for downloading materials from Intelligent’s computer system without consent in order to
develop its own software for Intelligent’s static artwork. The Court held that the contract in question was
a ‘relational contract’ in the sense of Yam Seng v International and concluded that it contained an
implied term of good faith which at least obliged the parties to act honestly. By secretly accessing and
downloading data from Intelligent’s computer system Bristol had breached this duty. Due to a number of
reasons, however, this breach was not considered to be repudiatory. 35

In Emirates Trading Agency Llc v Prime Mineral Exports Private Ltd36 the High Court held that a dispute
resolution clause calling for ‘friendly discussions’ between the parties was enforceable, thereby ending
the English courts’ traditional hostility towards the enforceability of negotiation agreements. At the
same time, the Court required the parties to act in good faith in conducting these negotiations by
obliging them to have fair, honest, and genuine discussions aimed at resolving the dispute. 37

A good faith obligation was also implied in a case in which a contract provides one party with
discretionary power to exercise a contractual right. In Socimer International Bank Ltd (in liquidation) v
Standard Bank London Ltd the Court of Appeal held that ‘a decision-maker's discretion will be limited, as
a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for
the absence of arbitrariness, capriciousness, perversity and irrationality’. 38 Courts have followed this
approach on several occasions, eg with respect to contractual agreements regarding the close-out of a
derivate portfolio 39 and the awarding of service points for breaches of a long-term private finance
initiative (PFI) contract. 40

2.2 A general principle of good faith: the Mediterranean shipping judgment of the English High Court

While English courts are ready to imply good faith obligations in certain circumstances, they remain
divided over the question whether there is an underlying general principle of good faith. In some cases,
the courts have insisted on the traditional view that there is no such general principle in English
commercial contract law. In a decision of 2014 the High Court reaffirmed this view:

‘So far as the ‘Good Faith’ condition is concerned, there is no general doctrine of good faith in English
contract law and such a term is unlikely to arise by way of necessary implication in a contract between
two sophisticated commercial parties negotiating at arms' length.’ 41

In other decisions, courts have been more open to the idea of a general principle of good faith. In Yam
Seng, Leggatt J rejected the traditional arguments against an overarching good faith principle. In his view,
accepting such a principle would not lead to more uncertainty than is already inherent in any process of
contractual interpretation. It would also be ‘entirely consistent with the case by case approach favoured
by the common law’, because the content of the good faith obligation is dependent on context and has
to be established on a case-by-case basis. 42 The application of a general principle of good faith would
also not unduly restrict the parties’ freedom to pursue their own interests, as the basis of the good faith
duty is the agreement of the parties. 43 He concluded that the traditional hostility towards good faith in
English contract law is misplaced.

In the recent decision MSC Mediterranean Shipping Co v Cottonex Anstalt,44 Leggatt J went one step
further. In that case, MSC, which operates a container shipping business, contracted with Cottonex to
carry 35 containers of raw cotton to Bangladesh. When the goods arrived, the market price of raw cotton
had collapsed and the buyer refused to collect the goods. As the ownership of the goods had passed to
the buyer, Cottonex was unable to remove the containers and return them to MSC. MSC claimed
liquidated damages (demurrage) on a daily basis on the ground that Cottonex had not returned the
containers to MSC within 14 days following discharge as foreseen in the contract. Cottonex claimed that
it was in repudiatory breach of the contract and that MSC had no legitimate interest to affirm the
contract. Otherwise Cottonex would be subject to a potentially open-ended liability for demurrage. The
High Court concurred with that reasoning and held that a party’s discretion whether to terminate or
affirm a contract in response to a repudiatory breach by the other side had to be exercised within the
limits established in Socimer , ie inter alia in good faith. In his reasoning Leggatt J considered these
fetters on the parties’ discretion as being a manifestation of the general organizing principle of good
faith referred to in the decision of the Canadian Supreme Court in Bhasyn v Hrynew :

Further impetus has been given to this development by the unanimous judgment of the Supreme Court
of Canada … holding that good faith contractual performance is a general organising principle of the
common law of contract which underpins and informs more specific rules and doctrines. One such more
specific rule which is now firmly established in English law is that, in the absence of very clear language
to the contrary, a contractual discretion must be exercised in good faith for the purpose for which it was
conferred, and must not be exercised arbitrarily, capriciously or unreasonably (in the sense of
irrationally). 45

This decision is remarkable for two reasons. First, the High Court accepts the existence of a general
principle of good faith in contractual performance. Second, the Court seems to regard the fetters on
contractual discretion as a rule of law or as a term implied in law. So far, English courts have implied
these limits not on the basis of a legal principle, but on the basis of the parties’ intentions. 46

3. THE ‘GENERAL ORGANISING PRINCIPLE OF GOOD FAITH’: THE BHASIN JUDGMENT OF THE
CANADIAN SUPREME COURT

In MSC v Cottonex the High Court did not elaborate on the content and the legal nature of the general
good faith principle. In order to assess its possible implications for English contract law it is necessary to
have a closer look at the decision Bhasin v Hrynew of the Canadian Supreme Court of 2014 to which
Leggatt J referred in his opinion.

3.1 The decision of the Canadian Supreme Court in Bhasin v Hrynew

In Bhasin v Hrynew47 the Canadian Supreme Court dealt with the question whether a general good faith
principle exists in Canadian common law. The case concerned the conduct of former Canadian American
Financial Corp. (‘Can-Am’) vis-à-vis Mr Bhasin, one of its retail dealers who marketed Can-Am’s education
savings plans to investors. The commercial dealership agreement between Can-Am and Mr Bhasin
provided that the contract would automatically renew at the end of the term unless one of the parties
gave six months’ written notice to the contrary. After the Alberta Securities Commission raised concerns
about compliance issues, Can-Am appointed Mr Hrynew, a competitor of Mr Bhasin, as single provincial
trading officer who was to review the other retail dealers for compliance with securities laws.
Additionally, Can-Am planned a restructuring of its agencies that included Mr Bhasin working for Mr
Hrynew’s agency. Can-Am did not inform Mr Bhasin of these plans and repeatedly mislead him with
regard to the role of Mr Hrynew. When Mr Bhasin objected to having Mr Hrynew review his confidential
business records, Can-Am gave notice under the renewal clause. At the expiry of the contract term, the
majority of Mr Bhasin’s sales agents were solicited by Mr Hrynew’s agency and Mr Bhasin was forced to
take less remunerative work with one of Can-Am’s competitors.

The Supreme Court held that Can-Am had acted dishonestly with Mr Bhasin throughout the period
leading up to its non-exercise of the renewal clause. To justify its conclusion that Can-Am had breached a
contractual duty of good faith, the Supreme Court, upon a careful examination of the Canadian case law
on this question, concluded that the Canadian common law regarding good faith is uncertain, lacks
coherence and is out of step with the reasonable expectations of the parties. 48 In order to improve the
law in this area, the Supreme Court took two significant steps.

First, it recognized that there is an ‘organising principle of good faith in common law that underlies and
manifests itself in more specific doctrines governing contractual performance’. 49

Second, the Supreme Court derived a general duty of honesty in contractual performance from that
general principle which forbids parties to lie or otherwise knowingly mislead each other with regard to
matters directly linked to contractual performance. 50 This duty does not take the form of an implied
term, but rather constitutes a general doctrine of contract law that applies irrespective of the intentions
of the contracting parties. 51

3.2 Legal nature and content of the general organizing principle of good faith

The general overarching organizing principle of good faith as acknowledged in Bhasin v Hrynew and MSC
v Cottonex does not itself serve as a basis for rights and duties. In the words of the Canadian Supreme
Court, it is not ‘a free-standing rule, but rather a standard that underpins and is manifested in more
specific legal doctrines’. 52 The general organizing principle is therefore not a rule or doctrine like the
general statutory provisions on good faith in civil law legal systems. Rather, claims of good faith have to
be based on existing doctrines governing contractual performance.

The general principle of good faith, however, not only provides a conduct-related framework for the
application of existing legal doctrines. It also serves as a basis ‘from which more specific legal doctrines
may be derived’. 53 The Canadian Supreme Court made use of that ‘creative’ function of the general
principle of good faith by assuming a ‘general duty of honesty in contractual performance’. 54 In MSC v
Cottonex the English High Court saw that principle as the basis for the rule that ‘a contractual discretion
must be exercised in good faith for the purpose for which it was conferred, and must not be exercised
arbitrarily, capriciously or unreasonably (in the sense of irrationally)’ .55 While this requires contracting
parties to take into account the legitimate contractual interests of each other, it does not mean that a
party has to put the interests of the other party first. It ‘merely requires that a party may not seek to
undermine those interests in bad faith’. 56

4. PRACTICAL IMPLICATIONS OF A GENERAL PRINCIPLE OF GOOD FAITH FOR ENGLISH CONTRACT LAW

What would an organizing principle of good faith mean for English commercial law and the parties to
commercial transactions?

4.1 Revolution or incremental development of the law?

It is fair to assume that acknowledging its existence will have an evolutionary rather than a revolutionary
effect on English contract law. As discussed, English courts have long accepted that aspects of honesty,
fairness, and reasonableness may play a role in the performance of commercial contracts. To enforce
these good faith aspects they apply a number of different rules and doctrines. The good faith principle
does not replace these doctrines. It is not a free-standing rule of law on which a party may base claims
of good faith, but rather a general standard of behaviour that operates and shows legal effects through
more specific legal instruments. English courts will therefore continue to rely on existing doctrines such
as the implication of terms.

The principle may, however, also serve as a basis for the development of new rules where the existing
law is found to be wanting with respect to good faith. It remains to be seen to what extent the courts
will make use of this function. It is unlikely that a broad doctrine of good faith comparable to the general
‘catch all’-provisions of civil law jurisdictions such as section 242 of the German Civil Code will be created
in the near future. Rather, the courts will proceed incrementally and develop new rules only where they
regard the current law as not sufficiently giving effect to the underlying principle of good faith. This
approach was taken by the Canadian Supreme Court in Bhasin v Hrynew, in which the Court refrained
from accepting a broad duty of good faith 57 but rather created a more limited general duty of honest
contractual performance relevant for the resolution of the dispute before it.

One possible effect of adopting a general principle could be that the courts rely to a greater extent on
the implication in law or doctrines of law to give effect to good faith in commercial transactions. So far,
English courts still rely to a great extent on the implication in fact. This approach has been criticized as
fictitious because it assumes that the parties intended certain good faith duties to apply to their
contract, while in reality, they have not given a thought to that subject. 58 There is indeed a danger that,
in order to reach a fair result, the courts overstretch the conceptual limits of the implication in fact.
English courts might be more willing to recognize that certain good faith duties should be based on the
law if they can rely on the organizing principle of good faith. One step into that direction could be to
follow the Canadian Supreme Court and develop a general doctrine of honesty in contractual
performance. This would hardly be a revolutionary step. English law already acknowledges the
importance of honesty in commercial transactions. As the High Court stated in Yam Seng , ‘it is hard to
envisage any contract which would not reasonably be understood as requiring honesty in its
performance’.

4.2 More good faith duties for parties to commercial contracts?

Accepting a general principle of good faith does not necessarily mean that parties to commercial
contracts will be subject to new or more extensive good faith duties. The general organizing principle will
not impose a pre-fabricated set of specific legal duties that need to be observed by the parties. Rather, it
requires the parties in general terms to perform their contractual duties honestly and reasonably and
not capriciously or arbitrarily. What good faith requires in a particular case will still be dependent on the
factual setting of the contract and context of the dispute. As already noted by the High Court in Yam
Seng, good faith might require more from parties to long-term contracts, because such contracts require
a high degree of cooperation than from parties to on-off contracts that involve a simple exchange. 59 In
the area of arbitral procedure, it may even be more appropriate not to develop more specific rules, given
the wide variety of guerrilla tactics and other non-good faith conduct that parties in international
arbitrations may adopt from time to time. 60

In the end, it will be up to the courts to shape the content of the general principle of good faith. English
courts have already begun to do so under the piecemeal-approach. As discussed above, it is now well-
settled that contractual discretion has to be exercised in good faith and must not be exercised arbitrarily,
capriciously or unreasonably. It is also accepted that parties to commercial contracts have to observe a
certain standard of honesty in contractual performance. However, there is plenty of room for further
concretization of what good faith requires from contracting parties. In Emirates Trading Agency v Prime
Mineral Exports , for example, the High Court decided that a duty to negotiate in good faith obliged the
parties to have ‘fair, honest and genuine discussions aimed at resolving the dispute’. 61 But what exactly
does this require of the parties? Will they be obliged to meet in person? Do they have to share
information? As further case law emerges, more concrete obligations will be identified. As good faith
plays an important role in international law and in most countries around the world including many
belonging to the common law family, English courts have the possibility to resort to a host of doctrine
and case law for guidance. With regard to (re-)negotiation clauses there have already been attempts to
create a ‘catalogue’ of more or less concrete and specific obligations, such as keeping to the negotiation
framework set out by the clause, respecting the remaining provisions of the contract, having regard to
the prior contractual practice between the parties, producing the information necessary for the
adaptation process, showing a sincere willingness to reach a compromise, avoiding unnecessary delays
in the negotiation process and making a serious effort to reach agreement. 62 As helpful as such lists may
be, they are not carved in stone. They are mere starting points for determining what good faith requires
in each individual case, having regard inter alia the purpose and nature of the contract and the interests
of the parties.

5. CONCLUSION

In the past few years, good faith has gradually gained ground in English contract law. English courts have
been more and more willing to imply sometimes broad good faith obligations into commercial contracts.
Some judgments have even put into question the traditional rejection of an overarching principle of
good faith by the English judiciary. The acceptance of a general organizing principle of good faith by the
High Court in MSC v Cottonex takes the discussion to the next level and might herald a new era for
English contract law. Statutory changes, eg in the area of insurance law, may serve as a further catalyst
for this development. Under Article 14 of the UK Insurance Act 2015 and Article 17 of the Marine
Insurance Act 1906, operative from 12 August 2016, the principle of good faith is established as an
independent interpretative principle of English insurance law. 63

It remains to be seen whether this means that the English courts themselves are beginning to ‘align
themselves… with the ancestral continental legal tradition of civil law jurisdictions’ 64 with respect to the
acceptance of a general principle of good faith. In fact, there is, no reason to believe that accepting an
organizing principle of good faith would radically change the way English courts handle disputes
involving commercial contracts. Good faith will continue to manifest itself through the specific rules and
doctrines governing contractual performance such as the implication of terms. The principle itself acts as
a standard that underlies and informs those rules. Furthermore, the organizing principle of good faith
could help to develop the law in a more ‘coherent and principled way’ than under the traditional
piecemeal approach. 65 Looking beyond the specificities of the individual case would help to bring English
law closer to commercial reality and in line with the reasonable expectations of commercial parties.

Fears that recognizing such a principle would create uncertainty or impede freedom of contract are
unjustified. The experience from civil law countries, international legal instruments and several common
law countries like the USA shows that shaping an overarching principle of good faith is not tantamount
to palm-tree justice. The law will continue to develop in an incremental way because the existing law will
remain the ‘primary guide to future development’. 66 Also, acceptance of such an organizing principle
does not call into question the basic notion of freedom of contract, as long as the courts apply it, as the
Canadian Supreme Court phrased it in Bhasin v Hrynew, ‘in a manner that is consistent with the
fundamental commitments of the common law of contract which generally places great weight on the
freedom of contracting parties to pursue their individual self-interest’. 67

1 s 242 BGB: ‘An obligor has a duty to perform according to the requirements of good faith, taking
customary practice into consideration.’

2 See, eg art 1134 French Code Civil; art 1366, 1375 Italian Codice Civile; art 7(1) Spanish Código Civil.
See also S Whittaker and R Zimmermann, ‘Good Faith in European Contract Law: Surveying the Legal
Landscape’ in S Whittaker and R Zimmermann (eds), Good Faith in European Contract Law (CUP 2000)
7ff .

3 Art 7(1) CISG: ‘In the interpretation of this Convention, regard is to be had to its international character
and to the need to promote uniformity in its application and the observance of good faith in
international trade.’

4 See Art 1.7 (Good faith and fair dealing), art 1.8 (Inconsistent behaviour), art 2.1.15 (Negotiations in
bad faith), art 4.8 (Supplying an omitted term), art 5.1.2(c) (Implied obligations) UPICC.

5 Cf also art 2.2 UN Charta; art 26 Vienna Convention on the Law of Treaties; Bin Cheng, General
Principles of Law as applied by International Courts and Tribunals (CUP 1987) 105ff.

6 Klaus Peter Berger, The Creeping Codification of the New Lex Mercatoria (2nd edn, KLI 2010) 277ff;
Trans-Lex Principle No I.1.1 – Good faith and fair dealing in international trade,
< www.trans-lex.org/901000 > accessed 8 February 2016.

7 See, eg F Dasser and D Gauthey, ‘La Bonne foi dans l’arbitrage’ [2015] ASA Bulletin 239ff; Duarte G
Henriques, ‘The Role of Good Faith in Arbitration: Are Arbitrators and Arbitral Institutions Bound to Act
in Good Faith’ [2015] ASA Bulletin 514ff.

8 Art 11.1 ILA/UNIDROIT Principles of Transnational Civil Procedure, text available at

< www.unidroit.org/instruments/transnational-civil-procedure > accessed 8 February 2016.
9 IBA Rules on the Taking of Evidence in International Arbitration of 29 May 2010, text available at
< www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx > accessed 8
February 2016.

10 Dasser and Gauthey (n 7) 239ff; Klaus Peter Berger, Private Dispute Resolution in International
Business (3rd edn, KLI 2015) Vol I (Handbook), paras 16–30.

11 See generally Nathan D O’Malley, Rules of Evidence in International Arbitration, An Annotated

Guide (Informa 2012) paras 7.44ff, hinting at the close connection between the duty to act in good faith
and the duty to cooperate.

12 IBA Guidelines on Party Representation in International Arbitration of 25 May 2013, text available at
< http://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx > accessed 8
February 2016.

13 IBA Guidelines on Party Representation in International Arbitration, Comments to Guidelines 26-27,

ibid.

14 Hugh Beale, Chitty on Contracts (31st edn, Sweet & Maxwell 2012) para 1-042; Simon Whittaker,
‘Good Faith, Implied Terms and Commercial Contracts’ [2013] LQR 463, 468.

15 Reshma Korde, ‘Good Faith and Freedom of Contract’ [2000] UCL Juris Rev 142, 159; Michael G
Bridge, ‘Doubting Good Faith’ (2005) 11 NZBLQ 424, 429.

16 s 1-304 UCC.

17 s 205 Restatement (2nd) of the Law of Contracts: ‘Every contract imposes upon each party a duty of
good faith and fair dealing in its performance and its enforcement.’

18 See Elisabeth Peden, ‘Good faith in the performance of contract law’ (2004) 42 LSJ 64.

19 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Hughes Aircraft
Systems International v Airservices Australia [1997] FCA 558; Alcatel Australia Ltd v Scarcella (1998) 44
NSWLR 349; Burger King v Hungry Jack’s Pty Ltd [2001] NSWCA 187; Vodafone Pacific Ltd v Mobile
Innovations Ltd [2004] NSWCA 15.

20 Bhasin v Hrynew , 2014 SCC 71.

21 Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013]
EWCA Civ 200 at [105].

22 Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433, 439.

23 Text of these provisions available at < www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-

rules-2014.aspx > accessed 8 February 2016.

24 Duarte G Henriques, ‘Pathological Arbitration Clauses, Good Faith and the Protection of Legitimate
Expectations’ (2015) 31 Arbitration International 349, 362.

25 Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB).

26 ibid at [153].

27 MSC Mediterranean Shipping Co v Cottonex Anstalt [2015] EWHC 283.

28 See for an example of an LCIA arbitration in which both the claim and the defences were based
almost exclusively on good faith ABB AG v Hochtief Airport GmbH and Athens International Airport
SA [2006] EWHC 388 (Comm).
29 Interfoto Picture Library (n 22).

30 Yam Seng PTE (n 25).

31 ibid at [156]ff.

32 ibid at [138].

33 ibid at [142].

34 Bristol Groundschool Ltd v Intelligent Data Capture Ltd & Ors [2014] EWHC 2145 (Ch).

35 ibid at [196].

36 Emirates Trading Agency Llc v Prime Mineral Exports Private Ltd [2014] EWHC 2104 (Comm).

37 ibid at [64].

38 Socimer International Bank Ltd (in liquidation) v Standard Bank London Ltd [2008] EWCA Civ 116, at
[66].

39 Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 584 (Comm).

40 Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969.

41 Greenclose Ltd v National Westminster Bank Plc [2014] EWHC 1156, at [150]. Cf ING Bank NV v Ros
Roca SA [2011] EWCA Civ 353 at [92].

42 Yam Seng PTE (n 25) at [152].

43 ibid at [148].

44 MSC Mediterranean (n 27).

45 ibid at [97].

46 See Socimer International Bank (n 38).

47 Bhasin (n 20).

48 ibid at [41].

49 ibid at [63].

50 ibid at [71].

51 ibid at [74].

52 ibid at [64].

53 ibid at [64].

54 ibid at [72]–[78].

55 MSC Mediterranean (n 27) at [97].

56 Bhasin (n 20) at [65].

57 ibid at [90].

58 This is why at least parts of the Australian jurisprudence prefer the implication in law, see Vodafone
Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [206]: ‘The obligation to exercise the power … in
good faith and reasonably, if found, is an obligation imposed by law … It is also a preferable use of
language, since it recognizes that the obligation is imposed by law - because the term is implied in law -
and does not proceed on a fiction that an intention of the parties is being found by a process of
construction.’

59 Yam Seng PTE (n 25) at [142]; Bhasin (n 20) at [69].

60 See Dasser and Gauthey (n 7) 269: ‘So keep it simple, less is more. Don’t create specific rules, even if
they are very ingenious, when a general rule suffices. In this sense, a pure and simple reference to the
general principle of good faith seems to us the right approach.’ (translation from the French original).

61 Emirates Trading Agency (n 36) at [64].

62 Klaus Peter Berger, ‘Renegotiation and Adaptation of Investment Contracts: The Role of Contract
Drafters and Arbitrators’ (2003) 36 Vanderbilt J Trans L 1347, 1365ff .

63 The new s 17 of the Marine Insurance Act provides: ‘A contract of marine insurance is a contract
based upon the utmost good faith’, full text available at
< www.legislation.gov.uk/ukpga/Edw7/6/41/contents > accessed 8 February 2016; see also Law
Commission Report, Nos 353 (England) and 238 (Scotland): Cm 8898; text available at
< www.lawcom.gov.uk/project/insurance-contract-law > accessed 8 February 2016. Report 353 [30.22].

64 See the quote of Henriques (n 24).

65 Bhasin (n 20) at [64].

66 ibid at [69].

67 ibid at [70].

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